THAT classic barometer of the economic cycle, the hotels sector, is checking in three and four-star profits again after a three year nightmare. But the actions of a number of the leading players in reducing their capital bases to make them less vulnerable to that cycle and wild-card cataclysms, such as the 11 September, 2001 terrorist acts shows that they have awoken clear-eyed.
The caution is understandable. After the attacks on America three years ago, occupancy rates at major hotel groups on both sides of the Atlantic slumped 25 per cent and room rates fell 15 per cent.
Hilton of the UK had bought Scandic, the Scandinavian hotels business, for 600 million shortly before 11, September, 2001. Ouch - or something similar - cigar-chomping, poker-playing Hilton boss David Michels, is understood to have thought.
Global economies slowed. Crucial business custom dried up.
Much lower current global interest rates have softened a horrible time for the industry, more than was possible during the high-rate early 1990s recession and first Gulf war.
However, hoteliers have still been caught between a rock and a hard bed.
They tried to offset the slump in business travel with promotions to attract the leisure market - but only had limited success and sliced profit margins. The Iraq war and SARS virus were further hammer blows.
A weak US dollar as well as the terrorist threat has kept American tourists away from the UK and Europe. A spokesman for Whitbread, owner of the four and five-star Marriott hotel chain, said: "It’s been a gruesome three years for hotels, particularly for groups like us with strong London representation. But it’s improving."
It is. In recent weeks, InterContinental Hotels Group, the world’s biggest hotelier, reported a 55 per cent jump in interim pre-tax profits to 143m. Major rival Hilton came in with a 20 per cent improvement in profits to 67m.
Whitbread reports its interim results on 28 October, and its Marriott chain is also expected to have made progress following its 10 per cent fall in profits last year.
Marriott has less of a London presence than InterContinental and Hilton. This meant it was hit less initially by stay-away American tourists (which had a serious impact on Jury’s in Ireland, however). But Marriott is therefore likely to have seen less of a recovery than its two big, quoted British rivals.
By contrast, the budget hotels sector has boomed, reflecting the success of budget airlines. One of the great strengths of no-frills hotels are that they are driven by domestic rather than foreign business.
In a trading update earlier this month, Whitbread said sales at Travel Inn, its main budget brand, were up an impressive 6.3 per cent - the biggest same-outlets growth the brand has ever had. The far grander Marriott’s sales, by comparison, were up 4.9 per cent.
In a rain-sodden summer in France, Accor also said that its cheap roadside businesses did much better than its luxury hotels.
This resilience of an hotels’ sub-sector that provides a clean room, tea and coffee-making equipment and little else, has not escaped financial buyers as well as trade buyers.
When Whitbread recently bought the Premier Lodge budget hotel chain for 536m to merge with Travel Inn, it had to fight off Apax Partners, Starwood Capital, Nomura and Hugh Osmond’s Sun Capital.
On the broader canvas, Hilton says that revenue per available room - a key industry measure - rose 17 per cent in its first trading half, and room rates were up more than 9 per cent. But both it, InterContinental and their rivals say it will be 2005 before the industry knows if room rates can be pushed up further and stick.
While on the subject of Hilton, the group has been mightily happy that it has had its Ladbrokes bookmaking army throughout the downturn. Bookmaking is the antithesis of hotels in being largely immune to economic cycles - profits surging 51 per cent to 154m at the halfway stage.
A wider sector strategy also seems to be emerging. It is one that links residual caution from the three-year nightmare to the fact that hotels are more cash-generative than they have been for some time.
It has led a number of them, led by InterContinental, to sell off a lot of hotel assets, while retaining management contracts.
This reduces operational gearing and releases cash for shareholders via special dividends or buybacks. It is short-term City sugar, with longer-term financial engineering.
Richard North, the just-ousted boss of InterContinental, has followed this policy since the group was floated as part of the demerger of Six Continents two years ago.
Under him, the company has sold, or is selling, 2 billion of its assets and by the end of the process will have returned 1bn to shareholders.
Whitbread has said it is reviewing Marriott’s capital structure, and a similar asset sell-off is expected to reduce exposure to economic and geopolitical vicissitudes. Expect others to follow suit.
Although hotel share prices have moved steadily upwards - with nervous blips - over the past year, the recovery did not come quick enough for all.
Macdonald Hotels, the Bathgate-based group that is Britain’s eighth biggest hotels business, went private again after being on the market since the mid-1990s - preferring to expand through bank borrowings than issuing paper it had felt was undervalued since flotation.
Perhaps the Scottish group was just unlucky. It was publicly-quoted in interesting times.